does anyone know what cash-on-cash ROI they shoot for when evaluating properties? do you just look for a positive, 25%?, 10%?. obviously you want it as high as possible but what is your TARGET when evaluating a property??? THANK YOU
Big,
I like to buy rentals with none of my own money so that I have at least 30% equity at close and a minimum positive cash flow of $100 per unit per month. The ROI doesn’t really apply because I don’t have any of my money in the deal.
Mike
yeah but do you get loans from the bank? i can’t get seller financing on this deal but i can get a FHA loan w/2% down. how do you get 100% financing on every deal?
Mike buys a discount to give the lender instant equity that works as security blanket for the lender should something happen. If the house is worth $100k and he buys it 100% financed for $70k the bank feels good about the deal because they know if they have to take it back they have $30k in equity built in.
If Joe Homeowner buys a $100k house for $100k with 100% financing and gets foreclosed on in the first few years the bank has basically no stake in that property. Buy the time they pay the attorney to foreclose, pay the realtor to market the property, mark down the price of the property due to damage (or pay to fix damages) they might be $20k+ in the hole. With Mike’s deal because he bought low they will break even or show a profit if they have to take it back so they feel great about the deal.
Ok,
Question for Mike:
What bank are you using that will give 100% financing if you can show you are buying at 70% of FMV. I have talked to so many banks and mortgage brokers that say they don’t care about FMV, only final sale price.
How do you valuate a multi-family property anyhow? FMV is really based on what cash flows someone will accept out of the property. Obviously some appraiser can come and throw a number down, but a multi-family’s value is based on gross rents and cash flows. I guess when it comes down to it, looking for $100 a month is a good rule to stick with and make all your valuations and offers from there?
I guess my real question is “What Bank” and the other paragraph is more rambling thoughts that I would appreciate confirmation on…
Thanks all,
Joshua
jsstinson you will find that most of us buy our property that way. Real estate is no better than any other investment except for leverage. We put none of our money into our deals and so our ROI is infinite (divide by zero). All real estate is local. Since there may be local restrictions on each type of loan program so telling you who my particular bank is may not give you what you want. What you need to do is go to your local real estate investors club and find out what mortgage brokers are there advertising and use one of them. I use http://www.gulfstatesmortgage.com/ but I know that http://www.texasloanstar.com/ and http://askzeus.com/homebuyer/ also do 100% loans using 90% loan to value products.
I always use small local banks that keep their loans in their own portfolio. The “secret” to being successful with local banks is to get to know the important players. I deal with the bank president at one bank and the vice-president at the other. This doesn’t happen by accident. REI requires work and part of that work is making the business relationships that are needed for your bank. But you don’t know the bank president??? How about having one of the successful investors at your REIA introduce you? We’ve all heard about that “6 degrees of separation” theory. YOU know someone who knows that bank president!
Good Luck,
Mike